Sugar Market Report for 27 June

Despite an improvement in prices during most of the session prices slumped in late trading to close at its lowest level since the middle of April on renewed fund selling. The market had opened 26 points but soon turned lower. However, support soon appeared with prices quickly improving again. The market then saw steady improvement in price during the morning reaching the highs of the day as US traders got to their desks. Prices initially dipped but soon recovered. However, unable to better the earlier highs more liquidation appeared taking prices down to unchanged. Once the lows of the previous day were breached a wave of selling took prices swiftly lower losing another 50 points in the last hour of the session with the market settling near the lows of the day. Surprisingly, the structure improved with the NV rallying back to a premium after gaining 17 points to end at +6. The VH also improved to +9 from par but eventually ended 2 points firmer at +2. In London the structure also improved with the QV finishing at -3.90 while the VZ was at +2.30. This meant the WP marginally improved as well with the VV WP at 130.70 and the VZ WP at 128.40. It was a peculiar session with the market looking strong for two-thirds of the day only to slump in late trading leaving most traders scratching their heads as to the reason for the late weakness. Some have suggested the dropping of the spot month open interest points to very limited desire to take delivery which, in turn, may be because physical demand has been hit by the recent high prices. Dry weather across Brazil’s CS aiding the crush and rains across India aiding the next cane crop also has weighed on prices.

Unica will release their latest harvest data this afternoon (15:00 London time) for the first half of June. Production is thought likely to have been capped by rain with 3 days lost. A S&P Global Commodity Insights survey sees sugar production during the period at 2.54 million tonnes from 40.16 million tonnes of cane. Agricultural yields are also looking good with an increase of around 20% from last season. The sugar/ethanol split is also expected to be at around 48.75/51.25 as is late May. Therefore, production is more than likely to be above the 2.14 million tonnes of sugar produced during the same period last season. Analysts are increasing their final estimates to record levels. Some are now believing the total could surpass 40 million tonnes but weather and logistics may intervene.

This morning the market opened unchanged but soon weakened shortly after the initial prints. Currently, the market is 35 points weaker. The NV is 3 points firmer at +9 while the VH is at par. In early London trading the QV is $2 weaker at -5.90 while the VZ is unchanged at +2.30. The OI in N-23 dropped to 59,669 lots with another 41,087 lots traded yesterday suggesting the OI is around 40k lots with 4 trading sessions until expiry. It does look as if the appetite to take delivery is waning on weak demand prospects. The macro is mixed this morning with crude higher and grains/soya lower. The USD Index is weaker while the BRL ended a tad firmer. The market looks vulnerable to further losses – sentiment has certainly changed from exceptionally bullish to a more considered view that Brazilian production could push the 2023/24 season into a surplus especially if it continues to rain across India. Given such high prices, every producer will be looking to increase production. Indian production could get back to the record levels of 2021/22 if the weather allows which would mean large exports again. However, much can happen over the next few months and the market will remain volatile.